Smart Beginner Investor

Introduction

Chapter 1: The Structure of Making Money Through Stock Investment
01.
Is stock investment also advantageous?
02.
Structure of making money with stocks
Column: A Jew Who Knows the Essence of Money

Chapter 2: What is 'Value'?
01.
Value lies in the balance between 'profit' and 'risk'.
02.
The value of a stock can be easily determined.
03.
Understanding the structure of value reveals the essence of investing.
Column Don't be too fond of cash!

Chapter 3: Uncover the Value of Your Company!
01.
What You Need to Know Before Estimating a Company's Value
02.
Find the value of a stock in 5 minutes
03.
How to find undervalued stocks?
The Pleasant Relationship Between Column PER, PBR, and ROE
* Find information on companies in our country

Chapter 4: How to Understand the 'Source' of Value?
01.
Let's look at the causes that lead to the results.
02.
What is market attractiveness?
03.
What is a strong business model?
04.
Can a strong model be extended?
05.
What you should pay attention to are small, undervalued, and growth stocks.
Column Graduation from Buffett

Chapter 5: Why Do Stock Prices Rise?
01.
Stock investing is a game of discerning the difference between value and price.
02.
What causes stock prices to rise?
03.
There are only two conditions for a good investment target:
04.
What kind of stock is a promising stock?
05.
Four Types of Investors in the Stock Market
The 'Trap' of Long-Term Investing

Chapter 6: How to Avoid Being Trapped by Emotions
01.
Why do people lose money on stocks?
02.
The 'Emotional Trap' Causes Damage
03.
Is there hope for investors?
04.
Seven Habits That Will Help You Invest
Column: Is stock investment a means or an end?

In conclusion
10 useful indicators to know
Translator's Note

Smart Beginner Investor

Don't be a sheep investor
- Four types of investors in the stock market

Stocks in the stock market can be broadly classified into four types.
The two criteria are first, the difference between the stock price and the corporate value, and second, the period of time over which the difference is resolved, i.e., the popularity of the stock.
For example, there are stocks that have a large difference between their price and value, but take a long time to resolve because people are not aware of them, and there are also stocks that are popular but do not have a large difference between their price and value.


According to this criterion, investors can also be classified into four types.
First, the wise owl investor.
They invest in companies with a large difference between their stock price and their corporate value, and then wait patiently for the corporate value to reach the stock price, even if it takes a long time.
They are traditional value investors.
The second is the fox investor who exploits market inefficiencies.
These are traders who are quick to capitalize on price and value differences that occur mainly over short periods of time.
Third, there are the lion-type investors who can be called professionals in the investment world.
These are the types of people who buy undervalued companies whole, increase their value, and then resell them, thereby filling the gap between value and price through their own efforts.
Representative examples include large private equity funds.
The last investor is a sheep-like investor who acts like a sheep without any special investment criteria.
They are always following someone.
They jump into stocks late, where the gap between the stock price and the company's value has already been filled, or even invest in stocks with higher stock prices.


Many individual investors remain in this sheep-like position.
They pursue popularity rather than value.
Sometimes you make a profit, but in the end, you always end up losing money and suffering.
What does it take to become a sheep-like investor? "The Intelligent Beginner Investor" is a book for these sheep-like investors.

The Way of the Smart Investor
- The Causal Matrix that Uncovers the Essence of Stock Investment

What interests stock investors most? Perhaps it's finding answers to the question: which stocks can make money?
In other words, the biggest concern of stock investors is to find stocks whose price will rise more in the future than it does now, thereby generating investment returns.


For a stock price to rise above its purchase price, the company's fair value must be lower than its stock price and the gap must close over time, or the company's business must be doing well and its size and profits must continue to grow.

The author of this book, who believes that when buying a single share of stock as an M&A expert, you should think and approach it the same way you would when buying an entire company, says that two things are necessary to achieve this.
Even if you are a beginner, I think you need to be able to do two things to invest in stocks.

First, quantitative analysis is necessary, that is, the fair value of the company must be assessed and compared to the stock price.
Valuing a company is not an easy task, but for individual investors, even a rough estimate is not insufficient.
The book provides an easy-to-understand explanation of how to assess fair value using real-world examples from companies.

The second is the qualitative analysis, which is the most interesting part of this book.
To make sound investment decisions, you must understand and evaluate the company's business environment and business structure.
In other words, we need to dig into the source and structure of the company's value creation and evaluate whether such structure will continue in the future.
To this end, the author introduces an analytical framework called the causal matrix, asking the following four questions:


1) Where and how much money have you earned? (Past performance)
2) Why was it possible to earn money in a certain structure? (Past environment and structure)
3) What changes will there be in the structure of making money in the future? (Future environment and structure)
4) How much can I earn in the future? (Future performance)

What stock investors ultimately want to know is 4) How much can they earn in the future?
But to know this, we need to go back a bit.
This is the process of considering 1)~3) in order.
If you cannot make investment decisions by considering all four areas according to this process, you cannot be considered a wise investor.

* Beginners or those who have invested without clear standards invest based on predictions of future performance without any specific basis.
This is more of a wish than an expectation.
* People who are obsessed with numbers are better than the first case, but they have limitations.
Numbers are just the results of the past.
So it's easy to make the mistake of only looking at the trees.
They skip straight from step ① to step ④.
* There are people who know the business environment and structure well, like people in the industry.
Because we have a good understanding of the industry's internal circumstances, we can better predict success points and the direction of changes in the business environment.
However, it tends to be weak from a quantitative perspective.
If you neglect financial figures, it is difficult to accurately determine the appropriate value.
They only anticipate step ③ from step ②.
* A wise investor considers both cause and effect, past and future.
Therefore, we accurately understand past performance, business environment, and structure, and predict future performance by taking into account expected changes in the business environment.
They predict ④ by considering each step ①, ②, and ③.

The author emphasizes the importance of being a wise investor, offering advice as an M&A expert.
The seven habits that will help you invest, listed at the end of the book, are based on the author's experience as an investment expert and M&A specialist.
This advice is particularly helpful in understanding the nature and source of corporate value.
"I've worked on domestic and international M&A deals, and I've seen companies from a wide range of industries and nationalities. But when you dig deeper, you'll find that every company ultimately has only one or two sources of value."

Although the book is written based on the philosophy of value investing, it does not emphasize the superiority of value investing or insist on long-term investment.
While respecting other investment methods such as trend following, he also points out that while Warren Buffett is undoubtedly an excellent investor, there are limits to individual investors blindly following him.
It is also emphasized without fail that the most important thing in investing is to pursue profits with spare money.

* This book is a revised edition of 『The Intelligent Beginner Investor』, published by our company in 2008.
It went out of print due to copyright issues caused by a change of publisher in Japan, and was republished through a contract with a new publisher.
The main content is the same, but the cases are different.